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International Implications of the Lanham Act – Trader Joe’s

Trader Joe’s, a grocery store that operates stores through the United States, successfully implicated the provisions of the Lanham Act against a Canadian company that was buying Trader Joe branded products in Washington State and brining them across the border to sell in its Vancouver store. The U.S. Court of Appeals for the Ninth Circuit stated “We hold that the extraterritorial reach of the Lanham Act is a merits question that does not implicate federal courts’ subject matter jurisdiction” and that the resale of Trader Joe’s goods without proper quality control measures and at higher prices could affect United States Commerce by harming Trader Joe’s reputation.

The Washington State Trader Joe’s noticed that a particular customer was coming in a number of times weekly to purchase large amounts of items. The customer, Michael Hallatt, operated a store called Pirate Joe’s 22 miles north of the Washington State Trader Joe’s. The Pirate Joe’s store uses a similar red lettering logo as Trader Joe’s. The lawsuit claims that Mr. Hallett has spent more than $350,000 buying Trader Joe’s products for resale.

The lower Court had initially dismissed the suit stating that United States Courts do not have subject matter jurisdiction over trademark infringement occurring only in Canada. The Court stated “Plaintiff does not state a claim upon which relief can be granted because the [Washington laws] do not apply where no Party is a Washington resident, all allegedly wrongful conduct occurs out of state, and any harm to Washington residents is extremely tangential if existent.” The Court of Appeals, however, found that Trader Joe’s had to sufficiently allege an impact on United States commerce and that it was injured by the actions of Hallett. Trader Joe’s argued that it was suffering reputational harm as Hallett was not exercising sufficient quality control over the products, many of which are perishable. Trader Joe’s lawyer stated that customers of Pirate Joe’s could mistakenly associate the Trader Joe’s brand with overpriced goods (Hallett was selling the goods for more in his store) and inferior customer service.

Pirate Joe’s website at www. piratejoes.ca currently states:

“Pirate Joe’s is an unaffiliated unauthorized re-seller of Trader Joe’s products (we were sued, they lost, they appealed, they won a second try). We stock what we are asked to stock by Trader Joe’s lovers who don’t always have the time (or a car or a passport) to head south to Bellingham (the nearest Trader Joe’s). We buy retail from Trader Joe’s then import everything legally and add Canadian compliant ingredient and nutrition facts labels. We have to pay the rent and the help (and the label supplier), so prices are about 30-40 percent higher than at Trader Joe’s. We also import other brands Canadians are duped out of. If you have a request we can usually get it for you within a week (no cheese – call your representative in government).”

In addition, the website states “We love a good Fight! (Hey TJ’s, we love you too). In order to bring the Trader Joe’s goods into Canada he had to comply with NAFTA, which made most of the goods duty free. However, he had to create a barcode system to summarize the products because he brought so much into Canada. He also had to print out new nutrition labels for the products to meet Canadian regulations.

After the first Trader Joe’s found out what Hallett was doing he was banned from that store so he started shopping at the Seattle Trader Joe’s. There is currently a sign in his store that states “We pay sneaky people to shop for us at TJ’s. (Mike has been Banned)”. Mr. Hallett even put an advertisement on Craigslist seeking a “co-pirate for undercover work” with a “well-established international grocery smuggling operation.” Additionally, after he was sued Hallett remove the letter p from his sign so that it now reads “Irate Joes”.

His defense in this case would seem to be the concept of the first sale doctrine and grey market goods. Once you buy something you are free to resell it to someone else so long as you do not alter the product in a way that confuses consumers

If Trader Joe’s were to open in Canada it could sue him there for trademark infringement – but this has apparently not happened yet.